Nick Goodway: Advisers’ meters could mean longer takeover journeys

The twists and turns of Carillion’s attempt to create a £3 billion construction and contracting giant by merging with rival Balfour Beatty have been a blessing to the City pages of all newspapers during the normally quiet month of August.

But the takeover proposal, which crucially is not yet a formal takeover bid, is also good news for all the advisers working on both sides because it is perhaps the biggest example yet for some years of a deal where their fees are no longer based largely on success.

Barely a day goes by without either Carillion or Balfour Beatty having to issue a stock exchange notice putting right what they or their opponents said on the previous day. Some of these read almost as though they should be appearing in the Clarifications and Corrections column of a daily newspaper.

The latest was Carillion chairman Philip Green’s comment that £1.5 billion of cost savings had been “audited”. They had not but had been reviewed by an independent firm of accountants. Spot the difference. Can you actually audit something which is happening in the future if the Financial Reporting Council has not yet formally approved the use of crystal balls?

What we could have here is the Takeover Panel working on overdrive (and overtime) ensuring that every single statement for either party is strictly within its code.

Equally it may be that Carillion and Balfour’s management are not quite so versed in the detail of the Takeover Code as they should be. But arguably that is their advisers’ role anyway.

Perhaps too many bankers and lawyers are relaxing on the beach while their juniors do the day-to-day stuff until the bid is forced to go live or go away at 5pm this Thursday.

There is no doubt that Rule 2.4 of the code, largely reconstructed three years ago, has been effective in forcing “possible” bidders to show their hands and, most importantly, restricting the amount of time management has to spend fighting any potential bid.

But it has also created these short, sharp battles like Carillion and Balfour or Pfizer for Astra Zeneca and Abbvie for Shire, where the relatively standard pricing structure for City fees has gone out of the window.

I have heard from both sides in the current battle that investment bankers, lawyers and even PRs have gone back to the good old practice of charging by the hour for their advice.

When Carillion and Balfour were talking earlier about an agreed merger the advisers were happy with fixed fees. Now the work has become messier and sillier they have decided it is time to turn the taxi meters on.

This is not simply good news for those who work on M&A in the City but might also add a dose of reality to those managements who are considering a tilt at one of their rivals. There is nothing like overspending on a failed takeover bid to help investors concentrate on executives’ pay packages.